If I Could Buy Only 3 Dow Jones Stocks Through 2025, I’d Pick These 3 Dividend-Growth

The Dow Jones Industrial Average has been around since the late 19th century. Its storied past has made it one of the key benchmarks that investors turn to for gauging stock market performance.

The 30 components in the Dow have changed a lot in recent years, with the addition of Amazon, Salesforce, and other growth names. Still, the Dow acts as a great representative of the broader market. And with all but two components paying dividends (Amazon and Boeing), the Dow is a great starting point for discovering blue chip dividend stocks.

Microsoft (MSFT 0.15%) and Walt Disney (DIS -0.68%) have been components of the Dow since the 1990s, while Nike (NKE -1.74%) was added in 2013. Here’s why all three Dow stocks are balanced buys worth considering through 2025.

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Microsoft’s advantages make up for potential AI challenges

Microsoft will report its fiscal 2025’s first-quarter earnings on Oct. 30. Investors will likely be watching for sustained growth in its Intelligent Cloud, artificial intelligence (AI) product improvements, engagement with Microsoft 365 Copilot and GitHub Copilot, guidance for fiscal 2025, and the company’s capital expenditure (capex) plans.

The company has been growing capex faster than revenue as it ramps up AI spending — and there are concerns that spending may not pay off as much as investors hope, which could pressure the stock price. But management has lots of advantages over smaller companies. For starters, it has more cash, cash equivalents, and marketable securities than debt on its balance sheet. Strong financial health gives Microsoft the wiggle room to pounce on exciting opportunities.

Microsoft also generates so much profit that it can afford these aggressive spending plans and still have plenty of cash left over to buy back a ton of its own stock and pay a rapidly growing dividend. In September, the company raised its quarterly dividend by 10% to $0.83 per share and authorized a new $60 billion share repurchase program.

Over the past decade, the company has increased its dividend by 168% and reduced its share count by nearly 10% — which is impressive considering its high stock-based compensation expense.

Microsoft is a balanced tech stock with a multi-decade runway for continued growth, helping to justify its current price-to-earnings ratio of 35.4. It’s a top Dow stock to watch through 2025 and could be an incredibly compelling buy if Wall Street beats its stock price down over short-term concerns.

Nike has a lot of work to do

There’s no sugarcoating how bad Nike stock has been in 2024: down over 23% compared to big gains in the major indexes. It is within 20% of a five-year low and is bringing in a new CEO to turn the business around.

Like many companies, Nike is dealing with a slowdown in China. But what’s particularly concerning is that lower sales and profitability have spread throughout the business, including footwear and apparel across all regions. Total Nike brand sales for the three months ended Aug. 31 were down 10% compared to the same period last year. And that same period in 2023 wasn’t even that impressive of a quarter.

Nike’s problems certainly aren’t trivial, but they do seem solvable. And when top brands go on sale for challenges that can prove temporary, it’s often a phenomenal time to buy the stock.

The main issues are that it mismanaged customer demand and was hit hard by supply chain disruptions and inflationary pressures. The build-out of Nike Direct, its e-commerce platform, was meant to help it be less dependent on wholesale and engage directly with consumers. But even Nike Direct is struggling, with sales down 13% in the recent quarter.

At just 23.9 times earnings and with a dividend yield of 1.8%, Nike stock stands out as a compelling value and a decent source of passive income in an otherwise expensive market. However, investors should only consider the stock if they are willing to give the company time to turn things around, as the situation could worsen before it gets better.

Disney is returning to growth

Disney is another Dow component that has been a major disappointment for patient investors. The stock is up less than 25% from its 10-year low and is on track to underperform the S&P 500 for the fourth consecutive year. But things are finally looking up for the media and entertainment giant.

Its streaming service, Disney+, is finally profitable. The company is back to generating box office hits, most notably Inside Out 2, which was a smashing success.

Management is paying a dividend and buying back stock again — a sign it isn’t as strapped for cash as it was a couple of years ago when Disney+ was bleeding hundreds of millions of dollars each quarter in operating losses.

Still, Disney is a highly cyclical company that depends on consumer discretionary spending. When household budgets get cut, a Disney trip is likely top of the list. After years of price increases, it just hiked theme park prices again, which could lead to disgruntled customers and hurt demand.

The company is not at the top of its game, but the worst of its box office blues and streaming slog are over. As with Nike, buying Disney now is more of a bet on where it could be years from now than where it is today. It stands out as a top value stock for patient investors to buy now.